Interchange still matters, mobile matters a lot, and bitcoin, well, it probably doesn’t matter yet. At least for credit unions. And it's terrorists who keep a PayPal executive up at night.
That was some of the takeaway the first day of the four-day Money 20/20 conference in Las Vegas. (Apple Pay has dominated payments news for the past few weeks, of course, and while it came up here and there on opening day, is the topic of several sessions scheduled later in the conference.)
On Sunday, a session titled “Mobile Driving Financial Inclusion” was standing room only as more than 300 people crowded in to hear a panel that included mobile carrier and device executives and a venture capitalist who says he hears regularly from hopefuls pitching “the next Uber of financial services.”
What they had to say seemed to make clear that credit unions still have a place at the table as mobile continues to go mainstream. For one thing, while apps that do everything but go to the grocery store garner attention, it’s the bread-and-butter of banking that’s going to stick as the unbanked goes mobile.
“The transactional account remains critical for mobile entry in the United States,” says Peter Ewens, chief strategy officer for T-Mobile USA. With smartphone penetration passing 90%, that leaves a lot of room for growth in that channel, especially in underserved areas where payday lenders and check cashers dominate, if there are any services at all.
Internationally that growth could be vast. IBM mobile payments director Alberto Jimenez and InVenture founder Shivani Siroya talked about what Jimenez calls the “huge liquidity disconnect” that represents billions of people with trillions of dollars not involved in the traditional banking system.
They’re part of a global sharing economy, and reaching them takes building trust and connecting locally through the informal networks they live in now. That’s why bitcoin and its competitors are not yet a factor, says Goran Loncaric, head of m-commerce technical solutions at Ericsson.
“It’s hard enough to build trust (among the world’s unbanked) with traditional currency,” he says. Doing it with crypto-currency seems way down the road.
The panelists also dismissed the idea that mobile would be the death of branches. Loncaric says even in his native Sweden, a country well on its way to going cashless, consumers still need human contact and place to go for advice, and use branches.
People look to their financial institutions for solutions to their everyday concerns. That remains true whether the transaction is mobile or inside brick-and-mortar. And that connection would seem to play to traditional credit union strengths.
The Trouble With Terrorists
A session titled “Managing AML and OFAC Risk in a Dynamic Regulator Environment” was highlighted by the chief compliance officer of PayPal’s revelation that what keeps him up at night are terrorists.
Gene Truono, who’s also the payments giant’s global head of anti-money laundering, says he doubts terror organizations can ever be kept completely out of the international payments system, but that he does think serious progress can be made in detecting their presence when it does happen. He says what concerns him most right now is that unlike cyber thieves, who are just after money, terror organizations also could focus on attacks that seriously disrupt global payment systems.
The regulators were represented on the panel by Jamal El-Hindi, an associate director at the multi-agency Financial Crimes Enforcement Network. He and the other panelists, all industry players, agreed that regulators and financial services can be at cross-purposes when it comes to know-your-customer and other rules, but that cooperation can and must be encouraged.
El-Hindi says FinCEN works to include financial institutions, processors and other providers in its guidance, as do the agencies that write and enforce the rules, and that often what’s being enforced are rules that have been on the book for years.
It’s also hard for regulations to keep up with fast-changing technology that’s being driven by consumer demand, the panelists agreed. But still, there are some things that could be done, one panelist notes.
“Here we are in the 21st century and we’re still filling out pieces of paper,” says Rick Small, senior vice president for AML, anti-corruption and international regulatory compliance at American Express.
Eyes On Interchange
The roster of presenters and exhibitors at this year’s Money 2020 is heavy on mobile channels, virtual currencies and other “disrupters.” Not as sexy but still significant is interchange, the subject of one of the first day’s first sessions.
“It’s kind of an old topic but it still continues to shape the payments industry in many ways, including some that are unforeseeable,” says Ken Paterson, director of credit advisory services at Mercator Advisory Group.
The panelists from both sides of the legal brawls over the Durbin Amendment and interchange cap agreed that the issue affects card issuers and retailers alike. New mobile wallet channels like the big retailers’ CurrentC could be less desirable and competition in general is being stifled, says Mallory Douglas, general counsel for the National Retail Federation.
Meanwhile, Brad Fauss, chairman-elect of the Network Branded Prepaid Card Association, says issuers are equally hard-hit by the Federal Reserve’s interchange cap of 21 cents per transaction and 5 basis points to cover fraud costs. “It’s capped below cost,” he says. “That’s why JPMorgan Chase doesn’t even do prepaid cards anymore. They got out.”
At least three lawsuits over interchange are still extant, and the Supreme Court may yet weigh in. Or decide to just leave well enough alone.
Check out the rest of our coverage from Money 20/20:
· Money 20/20 Buzz Speaks To Opportunity For Credit Unions
· Apple Pay, Millennials Channel Day Two At Money 20/20